Report: Fed Web Funds for Schools Riddled With Fraud

The $2.25 billion federal program designed to help schools and libraries connect to the Internet is “honeycombed” with fraud, according to a new report by the Center for Public Integrity, a Washington-based non-profit “public service journalism” organization. The center’s study focuses on the FCC’s “E-Rate” program, a part of the agency’s Universal Service Fund (USF) and financed by fees added to consumers’ telephone bills.

Originally organized to help rural areas obtain affordable telephone services, the USF’s scope was expanded in 1996 to include discounted Internet connection rates for public schools and libraries. The FCC maintains oversight authority for the program but contracts out the administration of it to a Washington-based non-profit group known as the Universal Service Administrative Company (USAC).

The center’s study is based on two FCC audit reports and independent interviews. The FCC audits have discovered abuses ranging from simple paperwork and reporting errors to false billing and other fraud potentially involving “hundreds of millions of dollars.”

The E-Rate program is based on a competitive bidding process, and the fund’s top service providers include IBM, SBC, Verizon, Bellsouth and Qwest. In December, USAC officials began denying or delaying applications by IBM, which received more than $350 million from the fund in 2001.

An IBM official said the company was surprised by the report and hoped to quickly resolve any billing or paperwork disputes.

Almost 90 percent of U.S. schools and libraries receive subsidies from the fund for Internet connections.

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